Sawmills and Wood Preservation

Industry Profile Report

Dive Deep into the industry with a 25+ page industry report (pdf format) including the following chapters

Industry Overview Current Conditions, Industry Structure, How Firms Operate, Industry Trends, Credit Underwriting & Risks, and Industry Forecast.

Call Preparation Call Prep Questions, Industry Terms, and Weblinks.

Financial Insights Working Capital, Capital Financing, Business Valuation, and Financial Benchmarks.

Industry Profile Excerpts

Industry Overview

The 2,700 sawmills and wood preservation companies in the US produce and treat a variety of wood products, including structural elements and dimension lumber. Major revenue categories include softwood lumber, hardwood lumber, preserved wood products, and wood chips. Sawmills may provide wood preservation services as a final step of production. Some large companies are vertically-integrated and own timberland or downstream operations, including divisions involving real estate ownership and residential construction.

Sensitivity To Economy And Construction Activity

Demand for wood products is highly dependent on the health of the construction and household furniture industries, both of which are sensitive to economic conditions.

Variable Timber Costs And Supply

The cost and supply of timber can be volatile, and affect margins and profitability for sawmills and wood preservation services providers.

Industry size & Structure

The average sawmill and wood preservation firm operates out of a single location, employs about 31-32 workers, and generates $11 million annually.

    • The sawmill and wood preservation industry consists of about 2,700 firms that employ 87,700 workers and generate $30.5 billion annually.
    • Sawmills account for 90% of firms and 78% of industry revenue.
    • The sawmill industry is fragmented; the top 50 companies account for 53% of industry revenue. The wood preservation industry is concentrated; the top 50 companies account for 85% of industry revenue.
    • Large companies with sawmill operations include Weyerhauser Company and PotlatchDeltic Corporation. Large companies that provide wood preservation services include Koppers Holdings, and Pacific Wood.
    • Some large companies are vertically-integrated and own timberland or downstream operations, including divisions involving real estate ownership and residential construction.
                                  Industry Forecast
                                  Sawmills and Wood Preservation Industry Growth
                                  Source: Vertical IQ and Inforum

                                  Recent Developments

                                  Mar 27, 2023 - Lumber Demand Expected to Drop
                                  • North American lumber consumption is expected to decline by about 7% in 2023, but that may have little effect on pricing, according to a lumber analyst with Forest Economic Advisors. Lumber demand is softening as high interest rates and elevated home prices slow the housing market. Remodeling boomed during the pandemic, but home improvement spending is projected to fall as much as 8% from its peak during the health crisis. While lumber demand is forecast to drop, supplies in key producing regions, including British Columbia and the US West Coast, are tight. Meanwhile, sawmills are curtailing production or even closing mills, while new planned mills are slow to come online. Lumber prices may be held in check by softening demand, tight supplies, and high inventories on the retail level.
                                  • Tight existing home inventories are pushing buyers into the new home market, which helped move home builder confidence higher in March, according to the National Association of Home Builders (NAHB). Home builder sentiment, as measured by the NAHB/Wells Fargo Housing Market Index (HMI), rose two points to 44 in March 2022 2022, although the HMI remained in bearish territory. Any HMI reading over 50 indicates that more builders see conditions as good than poor. While stress in the US financial system pushed mortgage interest rates down, affordability is still a significant roadblock to homeownership for many. The NAHB said a side effect of the increased pressure on regional banks would be a further tightening of acquisition, development, and construction (AD&C) loans for home builders.
                                  • Mortgage rates dipped after the collapses of Silicon Valley Bank and Signature Bank and the rescue of First Republic Bank, but housing industry watchers are uncertain if lower rates will persist long enough to provide much relief from the affordability issues that have slowed the US housing market, according to Yahoo Finance. Redfin chief economist Daryl Fairweather told Yahoo Finance, “There's still a lot of uncertainty, but in the near term, I do expect mortgage rates to drop. And I expect buyers to take advantage of those mortgage rates because we've seen buyers be incredibly sensitive to those interest rates.” However, some industry insiders suggest that rates would need to drop and stay low for a sustained period to lure more buyers into the market. On March 22, the Federal Reserve approved an interest rate increase of a quarter-percentage point but signaled the Fed’s rate hike strategy for taming inflation could be on hold pending the stabilization of the banking sector, according to The Wall Street Journal.
                                  • In their recent fourth-quarter reporting, home improvement retail giants Home Depot and Lowe’s warned of weaker results in 2023 as consumers pull back on remodeling and shift more spending to services. Lowe’s CEO said consumers have grown more cautious amid inflation and higher interest rates. Home Depot also expects home improvement demand to moderate as spending shifts to experiences such as dining out and travel. Lowe’s said it estimates its same-store sales to, at best, be flat for 2023 and could drop by as much as 2%. Home Depot plans to invest $1 billion in higher wages for hourly workers, which it expects will contribute to a mid-single-digit drop in the company’s adjusted per-share earnings in 2023.
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